In the context of a country’s socio-economic prosperity, early childhood care and development is a long-term investment with a 15–20-year rate of return – the time when these children enter the labour market, with the resulting lift for the economy. This year's World Education Day is a fitting time to consider reasons to invest in and sustain a sector that prepares children to be educated and readies them for meaningful work.

A long-term mindset—in investment parlance, “patient capital”—is necessary, given the infrastructure and revenues committed for public primary and secondary education, along with the attention and investment needed to support preschool care centres that prepare children for their futures. In addition to high costs forming a barrier to entry in this sector, attracting investment can sometimes be hampered by cultural norms against childcare occurring outside the family.

The U.S. Agency for International Development (USAID) is participating in the World Bank’s effort to spur additional investment in child care through the global Invest in Childcare initiative launched in 2022 to ignite up to US$180 million in investments over the next five years. USAID pledged up to US$50 million in support and has allocated some of its investment in Palladium’s CATALYZE EduFinance program to pioneer new blended finance mechanisms to strengthen the “childcare economy.”

Generally, this economy focuses on care for children from infancy to middle school years, from both private and public sector stakeholders, including philanthropic and faith-based organisations. The sector also includes the enabling ecosystem for childcare providers, domestic services, elder care, and care of the disabled.

Proponents argue that the sector should be a focus for governments and investors, and their reasons are clear. High-quality early childhood development generates savings and efficiencies in education due to improved school readiness, lower drop-outs, reduced grade repetition, and higher academic attainment. Further, preschool attendance is linked to better health-seeking behaviour and greater social cohesion, which in turn promotes economic growth and reduces burdens on government systems.

But when formal childcare measures aren’t in place, the burden often falls on women and girls, who are 15 times more likely than men to be unemployed due to childcare responsibilities. And formalising childcare work can build better futures for both women and economies. 19% of women globally are employed in the paid care sector and unpaid care work represents 9% of global gross domestic product—two times that of agriculture—representing 2.4 billion would-be full-time employees.

The Case for Investing in Childcare

Though vast improvements have been made in preschool enrollments, up from 34 to 62% since 2000, the need is still immense, and governments lack enough resources to finance universal coverage and are hampered because oversight belongs to many branches of government, leading to fragmented systems and accountability.

According to the World Bank, 600 million children globally need childcare, and 350 million children have no access to any form of care. This increased need is thanks to single-parent households that are usually woman-led, rural-to-urban migration separating families from traditional support systems, and women entering the workforce. Even among middle- and higher-income countries, care for children under the age of three is often neglected in government policy. In Brazil, for example, where strong policy is in place, demand far outstrips supply and has led to lottery systems and long waiting lists.

To fill the gaps, the private sector and global funders can play a substantial role. Palladium’s experience with CATALYZE and beyond has shown that private sector investment is best when blended with state and non-state actors to expand resources and reveals several emerging trends:

• The early childhood development sector is nascent. Most providers run micro-enterprises on an almost hand-to-mouth basis. Home-based and neighborhood-based care form the bulk of enterprises but are often invisible and unmonitored.

• Informal providers should be included in the care economy and supported with training, career pathways, professional development, and access to market entry as entrepreneurs, which requires initiatives at the national and sector levels.

• Barriers to entry include burdensome registration requirements, the lack of accreditation, high costs, tight margins, and lack of financing. A more formalised care economy with standard and streamlined regulations will help providers obtain the requisite financial and entrepreneurial skills.

• Investors and donor interventions must recognise that home-based care is the norm and will likely continue to be.

• Technology has an important role in helping to teach providers about child learning and in improving back-end systems that support the sector, such as payment platforms.

In practice, a range of models are utilised. In some countries, the government plays a significant role and private sector investment should leverage the existing network and strengthen its capacity. In other environments, the private sector plays a stronger role and efforts should focus on formalising the sector to unlock more investment.

Palladium implements childhood development programs in Honduras, Paraguay, India, Rwanda, South Africa, and Tanzania with a range of models. Teams are conducting research, including a global review on opportunities to develop the care economy, helping to deploy capital and technical expertise for business management and strategic planning, and linking improved education outcomes to motivate adequate financing for providers.

Because when early childhood care is properly financed and developed, it’s not only good for the next generation of citizens – it helps women, who make up a large swath of the labour force and the economy today.

USAID CATALYZE is implemented by Palladium and funded by the United States Agency for International Development (USAID), for more information, contact info@thepalladiumgroup.com.